Future proofing property incomes for businesses
Has there ever been a more interesting time in the residential property sector for property businesses relying on rental incomes and management and ancillary fees?
The apparent clamour for transparency amid parliamentary scrutiny, regulation and smart tenants regarding transactional incomes including ground rents, ancillary fees relating to property sales and purchases, letting fees, insurance commissions, late payment costs and so many other disclosed and undisclosed sources of incomes for management businesses, freeholders and investment landlords can appear worrying for those reliant on the status quo.
The residential property management sector and the businesses operating within it have seen incomes squeezed since 2007 (where have the last 10 years gone?) both from the reduction of residential property transactions in the leasehold sector (latterly bolstered by the innumerable first time buyer initiatives) and the influx of new players moving into the sector from the traditional estate agency sector and elsewhere promising “better” management and lower service charges for leaseholders. The result has been a merry-go-round of RMC directors deciding, for better or worse, fickle or otherwise, to switch agents. Then to make matters worse hard to retain individual property managers moving from agent to agent pushing up property manager salaries and costs for agents. If managing and retaining staff and professional fee and property based incomes is already a hard balancing act for owners and managers of property businesses then add in the complication of predicting the next 12 to 24 months of Brexit negotiations, inflation, interest rate uncertainty and a possible downturn in property prices and reduced transactions and parliamentary scrutiny of ground rents.
So how can a property business future proof income? A cynic might suggest opening an insolvency department to advise and charge tenants on how best to salvage their solvency amid what is an uncertain economic time for individuals and families. Perhaps more realistically property businesses should, as many are doing, predict where the best management and property fee markets will be over the next 5 to 10 years.
Managing agents reliant on the traditional block management sector are now aware that the emerging institutional build to rent and private rented sector (PRS) is a similar service environment to the leaseholder service sector. Any apparent differentiation between a leaseholder and a private rent tenant (or “customer” as some like to call them) is simply a case of moving from the communal areas and in through the tenants’ front doors. Yes the PRS service provider has to be sophisticated and very much in tune with individual tenants to retain the customer and the tenant experience but suppliers of services to the communal areas and now into apartments interiors are not so different.
It is a time for property businesses to have their wits about them, to second guess what the uncertainties may bring but there will always be property and there will always be residents and tenants and even customers. The key will be to adapt to declining sources of a variety of ancillary and mainline incomes and move to more profitable and emerging incomes sources and for business owners being creative in those markets and to train and retain staff to adapt and change as and when the markets shift as they will always do. The number of people moving with mortgages last year declined for the first time since 2011. Under 35s currently hold only 5% of the nation’s housing equity and average deposits for first time buyers are now at £32,000 (double that of 2007). Average leasehold service charges for new flats are creeping up towards £3,000. The PRS offers welcome independence to individuals looking for homes. Economic uncertainty means those individuals entering the PRS have flexibility and PRS businesses have a burgeoning and ready supply of customers.
SLC’s Principal Solicitor, Neil Shearing, says “business markets change and adapt frequently and all property businesses have to keep their finger on the pulse, excel in service levels and be innovative as we always seek to be. We were the first business in the legal sector to bring to the property management and ground rent sector a free-to-outsource model and for the last 2 years create and deliver a no and low cost model into the PRS. Innovation and adaptability is key to all businesses – as is watching the economy closely at this uncertain time. Key also is to keep overheads such as supplier costs at manageable levels and employ suppliers, including law firms, who offer value and create and maximise ancillary incomes as we have a proven track record of doing for our property clients at SLC. There is much to play for and there are huge opportunities for all. Over the coming months we will be announcing new and innovative services to future proof our clients incomes”.
To discuss ways to future proof and maximise property incomes please feel free to contact Neil Shearing (firstname.lastname@example.org).